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Beyond the Numbers

Wall Street Volatility May Persist Amid Focus On Omicron
12/1/2021 8:47 AM

The major U.S. index futures are currently pointing to a higher open on Wednesday, with stocks likely to extend the rollercoaster ride seen over the past few sessions.

The upward momentum on Wall Street comes after stocks moved sharply lower over the course of the previous session, with the Dow and the S&P 500 slumping to their lowest closing levels in at least a month.

The sharp pullback on Tuesday came following a strong upward move on Monday, which in turn followed the sell-off seen last Friday.

The recent volatility on Wall Street comes as traders have been reacting to the latest news about the Omicron variant of the coronavirus.

While news of the detection of the variant contributed to the steep drop last Friday, indications the symptoms of the variant were “extremely mild” contributed to the rebound on Monday.

However, comments from Covid-related drugmakers suggesting vaccines and treatments are less effective against Omicron contributed to yesterday’s pullback.

Traders are also likely to keep an eye on Federal Reserve Chair Fed Jerome Powell’s second day of Congressional testimony after he suggested yesterday that the central bank may accelerate the tapering of its bond purchases.

Powell is due to testify before a House Financial Services Committee hybrid hearing, although his prepared remarks will mirror those he delivered to the Senate Banking Committee on Tuesday.

On the U.S. economic front, a report released by payroll processor ADP showed private sector employment increased by slightly more than expected in the month of November.

Stocks moved sharply lower during trading on Tuesday, largely offsetting the notable rebound seen on Monday. With the steep drop on the day, the Dow and the S&P 500 fell to their lowest closing levels in at least a month.

The major averages saw continued weakness going into the close of trading. The Dow plunged 652.22 points or 1.9 percent to 34,483.72, the Nasdaq slumped 245.14 points or 1.6 percent to 15,537.69 and the S&P 500 tumbled 88.27 points or 1.9 percent to 4,567.00.

The sell-off on Wall Street partly reflected renewed concerns about the new coronavirus variant after Moderna's (MRNA) CEO said in an interview that Covid-19 vaccines are likely to be less effective against Omicron.

Moderna CEO Stephane Bancel said in an interview with the Financial Times that it would take a couple of weeks to determine how much the mutations have affected the efficacy of the vaccines currently available in the market.

"Depending on how much it dropped, we might decide on the one hand to give a higher dose of the current vaccine around the world to protect people," Bancel said. "Maybe people at very high risk, the immunocompromised, and the elderly should need a fourth dose."

Regeneron Pharmaceuticals (REGN) has also warned its Covid-19 antibody cocktail and similar drugs could be less effective against the Omicron variant.

Stocks saw further downside after Federal Reserve Jerome Powell suggested during Congressional testimony that the central bank would discuss accelerating the pace at which it reduces its asset purchases during the next monetary policy meeting.

"At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner," Powell said.

In early November, the Fed announced plans to begin reducing its $120 billion in monthly bond purchases by $15 billion per month.

Powell's comments suggesting accelerated tapering comes as he told the Senate Banking Committee the recent surge in new Covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation.

"Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions," Powell said.

The potential for the intensification in supply-chain disruptions comes as Powell noted pandemic-related supply and demand imbalances have already contributed to notable price increases in some areas.

Powell also indicated the Fed should retire the word "transitory" when referring to inflation, noting the central bank views it as meaning not leaving a lasting mark on the economy rather than short-lived.

Tobacco stocks extended a recent sell-off, dragging the NYSE Arca Tobacco Index down by 3.6 percent to its lowest closing level in almost ten months.

A notable drop by treasury yields also weighed on financial stocks, with the NYSE Arca Broker/Dealer Index and the KBW Bank Index tumbling by 3.2 percent and 3.1 percent, respectively.

Transportation stocks also saw substantial weakness amid concerns about new travel restrictions as a result of the omicron variant, resulting in a 3.2 percent nosedive by the Dow Jones Transportation Average.

Energy, utilities, software and housing stocks also showed significant moves to the downside on the day, reflecting broad based selling pressure on Wall Street.

Commodity, Currency Markets

Crude oil futures are surging $1.93 to $68.11 a barrel after plunging $3.77 to $66.18 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $1,792.30, up $15.80 compared to the previous session’s close of $1,776.50. On Tuesday, gold fell $8.70.

On the currency front, the U.S. dollar is trading at 113.19 yen compared to the 113.17 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1330 compared to yesterday’s $1.1338.

Asia

Asian stocks ended broadly higher on Wednesday as a slew of positive regional data helped counter growing concerns about the Omicron coronavirus variant and expectations of an accelerated bond purchase rollback in the United States.

Chinese markets advanced on economic optimism after Vice Premier Liu He pledged enhanced support for businesses and said he is expecting a strong 2021.

Investors shrugged off the results of a survey showing the manufacturing sector in China slipped into contraction territory in November.

The benchmark Shanghai Composite Index rose 13 points, or 0.4 percent, to 3,576.89, while Hong Kong's Hang Seng Index ended up 183.66 points, or 0.8 percent, at 23,658.92.

Japanese shares rose after three straight sessions of sharp losses, as data showed the country's factory activity grew at the fastest pace in nearly four years in November.

The Nikkei 225 Index climbed 113.86 points, or 0.4 percent, to 27,935.62, while the broader Topix ended 0.4 percent higher at 1,936.74.

Robot maker Fanuc and air-conditioning maker Daikin Industries jumped around 4.5 percent each. Automakers also gained ground, with Honda Motor and Toyota both rising over 2 percent.

Meanwhile, technology heavyweights lost ground, with SoftBank and M3 falling over 2.2 percent and 2.1 percent, respectively.

Australian markets hit a two-month low as growing concerns about the efficacy of Covid-19 vaccines against the Omicron variant overshadowed better-than-expected Q3 GDP data.

The Australian economy shrank 1.9 percent in the September quarter, significantly better than the anticipated 2.7 percent decline forecast by economists.

The benchmark S&P/ASX 200 Index dropped 20.10 points, or 0.3 percent, to 7,235.90, its weakest level since October 6. The index shed 1 percent in early trading as authorities flagged another probable case of the Omicron variant in Sydney. The broader All Ordinaries Index ended down 29.60 points, or 0.4 percent, at 7,557.80.

Supermarket giants led the losses, with Woolworths and Coles falling 2.4 percent and 1.6 percent, respectively. Miners BHP, Fortescue Metals Group and Rio Tinto rose between 1.4 percent and 2.4 percent as iron ore futures jumped on optimism over a bout of restocking by China's steel mills.

Seoul stocks rallied to snap a six-day losing streak after a survey showed the country's factory activity expanded further in November. The Kospi jumped 60.71 points, or 2.1 percent, to close at 2,899.72 after plunging to the year's lowest level in the previous session.

Chipmakers topped the gainers list, with Samsung Electronics and SK Hynix surging 4.4 percent and 2.2 percent, respectively.

Europe

European stocks have moved sharply higher on Wednesday, as rising commodity prices amid easing concerns about the new Covid-19 variant have helped lift miners and energy stocks. Banks are also trading higher after the Powell indicated a quicker taper of bond purchases.

In economic news, the Eurozone Manufacturing PMI was finalized at 58.4 in November, up slightly from October's 58.3.

The U.K. Manufacturing PMI was finalized at 58.1 vs. 58.2 estimated, while Germany reported disappointing retail sales data amid surging price pressures and supply bottlenecks.

While the U.K.’s FTSE 100 Index has jumped by 1.3 percent, the German DAX Index and the French CAC 40 Index are up by 1.8 percent and 1.9 percent, respectively.

Husqvarna, the world's biggest maker of power gardening tools, has moved notably higher after raising its sales and profit targets.

German healthcare company Fresenius Medical Care AG has also risen after it announced a series of changes to its management board effective January 1, 2022.

Swiss bank UBS has advanced after it recruited former JP Morgan Chase executive Sarah Youngwood as its group chief financial officer.

BP Plc and Royal Dutch Shell have also jumped as oil prices climb ahead of an OPEC meeting where major producers will discuss how to respond to potentially lower demand against the backdrop of Omicron.

Insurer Aviva has also moved higher after announcing it had completed the sale of its Aviva Poland unit for EUR2.5 billion in cash to German peer Allianz SE.

Gambling company 888 Holdings has also moved to the upside after it has been awarded a provisional sports-betting license from the Virginia Lottery.

Sanofi has also risen. The French drug major announced that it entered into an agreement to acquire Austrian privately owned biotechnology company Origimm Biotechnology GmbH. The acquisition is expected to close in early December 2021.

U.S. Economic Reports

A report released by payroll processor ADP on Wednesday showed private sector employment in the U.S. increased by slightly more than expected in the month of November.

ADP said private sector employment shot up by 534,000 jobs in November after surging by a revised 570,000 jobs in October.

Economists had expected private sector employment to jump by about 525,000 jobs compared to the addition of 571,000 jobs originally reported for the previous month.

Federal Reserve Chair Jerome Powell is due to testify before a House Financial Services Committee hybrid hearing on oversight of the Treasury Department's and the Fed’s pandemic response at 10 am ET.

Also at 10 am ET, the Institute for Supply Management is scheduled to release its report on manufacturing activity in the month of November.

The ISM’s manufacturing PMI is expected to inch up to 61.0 in November from 60.8 in October, with a reading above 50 indicating growth in the sector.

The Commerce Department is also due to release its report no construction spending in the month of October at 10 am ET. Construction spending is expected to increase by 0.4 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended November 26th.

Crude oil inventories are expected to decrease by 1.7 million barrels after rising by 1.0 million barrels in the previous week.

At 2 pm ET, the Federal Reserve is due to release its Beige Book, a compilation of anecdotal evidence on economic conditions in each of the twelve Fed districts.

Stocks In Focus

Shares of Ambarella (AMBA) are moving sharply higher in pre-market trading after the chipmaker reported fiscal third quarter results that exceeded analyst estimates on both the top and bottom lines.

Cloud-computing company Box Inc. (BOX) is also likely to see initial strength after reporting better than expected fiscal third quarter results and providing upbeat guidance.

On the other hand, shares of Salesforce (CRM) may come under pressure after the customer relationship management software company reported fiscal third quarter results that beat expectations but forecast fourth quarter earnings below analyst estimates.

Sustainable shoe maker Allbirds (BIRD) is also likely to move to the downside after reporting a wider than expected third quarter loss in its first quarterly report as a public company.
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